FINM3401 Cost of Capital Calculation

The report should comprise of two parts: cost of capital calculation part and cash flow analysis part. While you should include your cash flows tables in your report, you have to attach an excel spreadsheet to show how you calculate stock beta. The report should address all the questions mentioned in “Questions on the Project” (see the last page).
Each group will turn in one report electronically. Each group will need to assign only one member to submit both assignment files (one report in PDF format and one excel workbook).

The report should be named in the following format The excel workbook should be named as Cover page: Each report should have a cover page that contains the following – the names of the group members followed by your student ID respectively in alphabetical order and the following summary information on the analysis:

Answer:

																			Particular	Year 3	Year 4	Year 5	Year 6	Year 7	Year 8	Year 9	Year 10	Year 11	Year 12	Year 13	Year 14	Year 15
																			Revenue per store	40.00	40.80	41.62	42.45	43.30	44.16	45.05	45.95	46.87	47.80	48.76	49.73	50.73
																			No. of Stores	50	60	70	80	90	100	110	120	130	140	150	150	150
		Year 0	Year 1	Year 2	Year 3	Year 4	Year 5	Year 6	Year 7	Year 8	Year 9	Year 10	Year 11	Year 12	Year 13	Year 14	Year 15	Terminal Value	Particular	From Year 4	5	6	7	8	9	10	11	12	13
Sl. No.	Particulars	-3	-2	-1	0	1	2	3	4	5	6	7	8	9	10	11	12		Cost of Opening new stores	150	153	156.1	159.2	162.4	165.6	168.9	172.3	175.7	179.3
1	Revenue				2,000.00	2,448.00	2,913.12	3,395.87	3,896.76	4,416.32	4,955.11	5,513.69	6,092.63	6,692.52	7,313.97	7,460.25	7,609.45		Marketing Test	250	Sunk Cost
2	Less: Expenditure
	- 80% of Revenue				1,600.00	1,958.40	2,330.50	2,716.69	3,117.40	3,533.06	3,964.09	4,410.95	4,874.10	5,354.01	5,851.17	5,968.20	6,087.56
	- Depn				150.00	165.00	180.30	195.91	211.82	228.06	244.62	261.51	278.74	296.32	314.25	149.25	133.95		Calculation of Depn	0	1	2	3	4	5	6	7	8	9	10	11	12	13	14	15	Particulars	Amount
	- Advertisment				200.000	204.000	208.080	212.242	216.486	220.816	225.232	229.737	234.332	239.019	243.799	248.675	253.648		Outlay	1000	250	250	150	153.0	156.1	159.2	162.4	165.6	168.9	172.3	175.7	179.3	182.8			Value of Investment	3325.307
	- Allocation of Corporate Cost				75	78	81.135	84.41145	87.83612	91.4161	95.15884	99.07216	103.1643	107.4437	111.9196	116.6013	121.4989		- Depn of 50 Stores				150	150	150	150	150	150	150	150	150	150	150			Value of Depreciation	2809.728
																			- Depn of 10 Stores				0	15	15	15	15	15	15	15	15	15	15			Closing Value of Asset	515.5791
3	Side Benefit				14.194	14.48	14.77	15.06	15.36	15.67	15.98	16.30	16.63	16.96	17.30	17.65	18.00		- Depn of 10 Stores				0	0	15.3	15.3	15.3	15.3	15.3	15.3	15.3	15.3	15.3	15.3
																			- Depn of 10 Stores				0	0	0	15.6	15.6	15.6	15.6	15.6	15.6	15.6	15.6	15.6	15.6
4	Loss in Revenue				128.57	128.57	128.57	128.57	128.57	128.57	128.57	128.57	128.57	128.57	128.57				- Depn of 10 Stores				0	0	0	0	15.9	15.9	15.9	15.9	15.9	15.9	15.9	15.9	15.9
																			- Depn of 10 Stores				0	0	0	0	0	16.2	16.2	16.2	16.2	16.2	16.2	16.2	16.2
5	Earning Before Tax				-139.38	-71.49	-0.69	73.11	150.00	230.07	313.42	400.15	490.34	584.11	681.56	995.18	1,030.80	-	- Depn of 10 Stores				0	0	0	0	0	0	16.6	16.6	16.6	16.6	16.6	16.6	16.6
																			- Depn of 10 Stores				0	0	0	0	0	0	0	16.9	16.9	16.9	16.9	16.9	16.9
7	Tax				-41.81	-21.45	-0.21	21.93	45.00	69.02	94.03	120.04	147.10	175.23	204.47	298.55	309.24	-	- Depn of 10 Stores				0	0	0	0	0	0	0	0	17.2	17.2	17.2	17.2	17.2
																			- Depn of 10 Stores				0	0	0	0	0	0	0	0	0	17.6	17.6	17.6	17.6
8	Earning after tax			-	-97.56	-50.05	-0.49	51.17	105.00	161.05	219.40	280.10	343.24	408.88	477.09	696.62	721.56	-	- Depn of 10 Stores				0	0	0	0	0	0	0	0	0	0	17.9	17.9	17.9
																							150	165	180.3	195.9	211.8	228.1	244.6	261.5	278.7	296.3	314.2	149.2	133.9
9	Depreciation			0	150	165	180.3	195.906	211.8241	228.0606	244.6218	261.5143	278.7445	296.3194	314.2458	149.2458	133.9458
																			Particular	Year 3	Year 4	Year 5	Year 6	Year 7	Year 8	Year 9	Year 10	Year 11	Year 12	Year 13	Year 14	Year 15
10	Profit after tax cashflows			-	52.44	114.95	179.81	247.08	316.82	389.11	464.02	541.62	621.99	705.20	791.34	845.87	855.50	-	Advertisement Cost (W/o Furniture)	1000.00	1020.00	1040.40	1061.21	1082.43	1104.08	1126.16	1148.69	1171.66	1195.09	1218.99	1243.37	1268.24
																			Advertisement Cost (With Furniture)	1200.00	1224.00	1248.48	1273.45	1298.92	1324.90	1351.39	1378.42	1405.99	1434.11	1462.79	1492.05	1521.89
11	Value of asset at the end of 15 years																	515.5791182	Incremental Cost	200.000	204.000	208.080	212.242	216.486	220.816	225.232	229.737	234.332	239.019	243.799	248.675	253.648

12	Increase in Working Capital																		Particular	Year 3	Year 4	Year 5	Year 6	Year 7	Year 8	Year 9	Year 10	Year 11	Year 12	Year 13	Year 14	Year 15
	-Receivables			200.00	44.80	46.51	48.27	50.09	51.96	53.88	55.86	57.89	59.99	62.14	14.63	14.92		760.95	G&A Cost	500	525	551.25	578.8125	607.753125	638.1408	670.0478	703.5502	738.7277	775.6641	814.4473	855.1697	897.9282
	-Inventory			160.00	35.84	37.21	38.62	40.07	41.57	43.10	44.69	46.32	47.99	49.72	11.70	11.94		608.76	10%	50	52.5	55.13	57.88	60.78	63.81	67.00	70.36	73.87	77.57	81.44	85.52	89.79
	-Payables			80.00	17.92	18.60	19.31	20.04	20.78	21.55	22.34	23.16	24.00	24.86	5.85	5.97		304.38	Incremental	25	25.5	26.01	26.53	27.06	27.60	28.15	28.72	29.29	29.88	30.47	31.08	31.71
																			Total Cost	75	78	81.1	84.4	87.8	91.4	95.2	99.1	103.2	107.4	111.9	116.6	121.5
13	Investment made	-1000	-250	-250	-150	-153	-156.06	-159.1812	-162.3648	-165.6121	-168.9244	-172.3029	-175.7489	-179.2639	-182.8492

14	Net cash flow	-1000	-250	-690	-196.12406	-140.3717	-82.45038	-22.29709	40.15258	104.9647	172.2069	241.9487	314.261	389.2167	576.3074	813.0438	855.505	2189.658287
																			Particular	Amount
15	Discount rate	1	0.920697	0.84768	0.78045797	0.718565	0.66158	0.609115	0.56081	0.516336	0.475388	0.437688	0.402978	0.371021	0.341597	0.314508	0.289566	0.289566027	Revenue	94595
																			Pre-tax operating Margin	13427
16	Present value of Cash flows	-1000	-230.174	-584.9	-153.06659	-100.8662	-54.54755	-13.58149	22.51796	54.19701	81.86518	105.8981	126.6403	144.4074	196.8651	255.7084	247.7252	634.0506504	Rate	14.2%

17	Net Present Value	-267.261169	Rejected
																			Company Name	Regression Beta	Total Debt	Total Market Cap	Equity	Beta* Market Cap
																			Mohawk Industries	1.18	2511.5	16690.9	14179.4	19695.262
																			Leggett & Platt Incorporated	1.1	959.8	6552.1	5592.3	7207.31
																			Tempur Sealy Internaltional Inc	1.39	1888.1	2529.1	641	3515.449
																			La-Z-Boy Incorporated	1.34	0.59	1386.4	1385.81	1857.776
																			Ethan Allen Interiors Inc.	1.28	40.3	797.5	757.2	1020.8
																			Flexsteel Industries, Inc.	1.82	0	412.7	412.7	751.114
																			A-Mart Furniture Corporation	0.86	49	383.6	334.6	329.896
																			Bassett Furniture Industries, Inc.	1.23	7.11	293.8	286.69	361.374
																			Nova Lifestyle, Inc.	0.99	8.03	48.2	40.17	47.718
																			Stanley Furniture Company, Inc	1.32	0	11.9	11.9	15.708
																			Total		5464.43	29106.2	23641.77	34802.407
																			Weighted beta					1.195704249
																			Debt Equity		23.11%
																			Unlevered beta	1.029187665
																			Beta for WOW	1.166070

																			Weighted Average Cost of Capital (Project)

																			Particular	Rate	Tax	Net	Weight	Net
																			Debt	4%	30%	2.8%	19%	0.53200%
																			Equity	9.72%		9.72%	100%	9.71797%
																			Total				119%	10%
																			WACC					8.61%


																			cost of Equity
																			Risk Free rate	2.5%
																			Risk Premium	6.19%
																			Beta	1.166070
																			cost of Equity	9.72%


																			Weighted Average Cost of Capital (Current)
																			Particular	Rate	Tax	Net	Weight	Net
																			Debt	4%	30%	2.8%	19%	0.53200%
																			Equity	8.01%		8.01%	100%	8.00910%
																			Total				119%	9%
																			WACC					7.18%


																			cost of Equity
																			Risk Free rate	2.5%
																			Risk Premium	6.19%
																			Beta	0.890000	https://www.reuters.com/finance/stocks/overview/WOW.AX
																			cost of Equity	8.01%

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